Consob, the Italian regulator in charge of the eurozone’s biggest bond market, revealed earlier in the week that it had completed a six month investigation of Citigroup and that it was now referring the matter to magistrates for further investigation.
It was revealed last month that German investigators were looking into the matter with a view to imposing a ban on the US-based finance group and now, according to the FT.com, Karsten Hiestermann, head of the regulatory exchange supervision in the German state of Hesse, is ready to call for sanctions.
The controversy that caused the world’s largest financial organization’s current woes dates back to August last year. Traders for the company rapidly sold E12 billion of eurozone bonds on the pan-European MTS electronic system on August 2, causing the price of the bonds to significantly drop. The traders then bought E4 billion worth of bonds back at the depressed values which created a profit of around E17 million for the company.
Citigroup has defended the actions by claiming that its traders mistakenly sold too many bonds and therefore had to buy some back to recover the originally desired quota. Citigroup also apologized for the conduct of some of its traders, but pointed out that the dealings, did not violate any applicable rules or regulations.
Citigroup’s latest eurozone problems add to an already poor week. The company found out on Monday that bankrupt Italian dairy Parmalat had been given permission by a US judge to sue it for $10 billion. The fraud charge alleges that Citigroup helped to disguise Parmalat’s insolvency. Citigroup had wanted the charges to be thrown out as it claimed that it was the victim in the association, not Parmalat.
Sanctions could involve a ban from the eurozone exchange for up to 30 days and a fine of up to E1.75 million. While, for individuals charged, jail sentences could last up to five years.
